UNCTAD BOLSTERS ANALYSIS OF THE ECONOMIC MODEL UNDERPINNING THE EAST ASIAN MIRACLE

TAD/INF/PR/960215 February 1996

Some 80 policy-makers, academics and senior economists from various regions will meet in Kuala Lumpur from 29 February to 1 March at a Conference on "East Asian Development: Lessons for a new global environment". The Conference is organized jointly by UNCTAD and the Institute of Strategic and International Studies (ISIS), Malaysia, and funded by the Government of Japan. The findings of the Conference will be transmitted to UNCTAD IX which will focus on the theme of globalization and liberalization.

The Conference is part of UNCTAD´s ongoing research on the economy of the region, which began with a comprehensive analysis in the UNCTAD Trade and Development Report 1994. It will also be the highlight of this year´s Report.

During the last two decades, the economic performance of a small group of rapidly growing East Asian countries has attracted an enormous amount of attention. More recently, a second tier of industrialising economies -- Indonesia, Malaysia, and Thailand -- has been added to the set of countries which are regarded as being part of the East Asian Miracle. This strong collective economic performance along with the reemergence of China on the world economic stage has raised prospects of a wider regional dynamic.

Because economic development in this region has been associated with a fast pace of industrialization, rapid growth of exports and steeply rising trends of output and living standards, this experience has begun to have a profound impact on economic policy debates outside the region. There is a growing consensus that the economic success of East Asia was not purely market driven, but was also attributable to a well defined role of the State, the UNCTAD secretariat points out in a report to the Conference.

Detailed studies have shown that the East Asian NIEs were using selective industrial policies to channel resources from old into new industries, altering their long-term industrial development. They were also applying policies that supported an impressive pace of capital accumulation in the region, without which the rapid pace of technological upgrading, product diversification and increasing international competitiveness would not have been possible. These policies were accompanied by the construction of institutional links to facilitate the cooperation between the government and the private sector.

However, elements in understanding the East Asian Miracle are still missing, in particular with regard to the institutional framework and the role of savings and investment. The objective of the Kuala Lumpur Conference is to shed further light on those elements. The final purpose is to examine whether other developing countries have the institutional prerequisites to implement a selective industrial policy and whether these prerequisites are, in any case, still relevant in today´s globalizing world economy.

UNCTAD´s view is that the changing international trading environment may be restricting the freedom of developing countries to conduct East Asian style policies, but there is a considerable room for manoeuvre if countries skilfully use various "permissible" subsidies, balance-of -payments clauses, non-trade-related policy measures, and are more creative in interpreting the new international trading rules.

As each country faces a unique situation, the search for lessons from success stories should not be guided by a desire to exactly replicate the experience elsewhere, as it clearly can not, UNCTAD warns. "The real issue is whether other countries can construct their own policy regimes and supporting institutions around development principles that have been a helpful guide to policy-makers and other actors involved in successful development experiences".

It is clear that there is no single path to development which fits every country, or even the majority of countries. However, recognizing this institutional diversity should not be confused with the argument that there are, therefore, no lessons to be learnt from the East Asian experience. It is both possible and instructive to identify some major principles that underlie this successful experience and try to adapt the policy tools and institutional vehicles that were used to realize those principles in order to fit local conditions elsewhere, and if necessary to devise new policy tools and institutions. Indeed, the Report concludes, if East Asian Governments had themselves believed in the impossibility of such institutional adaptation and innovation and had ignored earlier success stories, it is doubtful whether there would have been an East Asian Miracle to discuss.